Running A Business

6 Reasons Why Most Businesses Fail

By Evan Tarver. Fit Small Business
Jun 20, 2018 • 4 min read
Stressed business owner at desk
Table of Contents

      The vast majority of businesses in the United States are small businesses—and only about half of them survive past their first five years. After 10 years, only a third remain.

      Businesses opening and closing is part of the natural life cycle of the economy, and your company not working out after five years shouldn’t be a source of shame. It happens.

      But assuming you don’t want to fall into the failure category, it might help to understand and learn from the reasons that most businesses end up folding. If you can plan around these common issues, you’ll be in good shape.

      1. Lack of access to capital

      This is the issue that most other, seemingly minor issues stem from. Expanding too quickly? Poor marketing and advertising efforts? Workflow jammed up? If you had access to capital, you probably wouldn’t run into these other problems.

      So, first things first: make sure you have money to spend on starting, maintaining, and eventually growing your business.

      If you need a loan or credit, there are a range of options, from traditional institutions like banks to online lenders that offer faster turnarounds. Getting a business loan is a better idea than resorting to your personal credit card, which many people do.

      The best possible option for a loan is one from the Small Business Administration—these loans typically have low interest rates and generous terms. If you qualify, get started early on an SBA loan, as they can take weeks or months to get approved.

      1. Unexpected legal issues

      This is another one that could be filed under “lack of money,” because access to capital can also help you fight frivolous lawsuits and resolve disputes, but there are lots of legal problems that can sink your business like an Atlantic iceberg.

      Even choosing to settle lawsuits, rather than spend time and money fighting them, can cost your business dearly. Make sure you cover all your bases by investing in things like digital payroll software, inventory and asset tracking software, and accounting software to give yourself a digital paper trail you can easily follow.

      1. Poor planning, management, and leadership

      When it comes to your business, the buck stops with you. If we’re being generous, you can also lay some of the blame for your issues at the feet of the people who hire to make crucial management decisions. But if any or all of you aren’t up to task of guiding your business in the right direction, prepare to fail.

      Management and planning is both about looking inward and outward. You need to know how to relate to, motivate, and understand your employees—losing them and creating a negative culture will cause irreparable harm to your business. You also need to look ahead and see what external challenges are facing your company, from changes in laws to shifts in trends and technology.

      1. Failing to outclass the competition

      Competition is a fact of life for every business in every industry. Even if your business is space travel, you’re going to have competitors. The trick is to properly differentiate your offerings from what your competitors provide, as well as beat your peers on the little things like customer service.

      1. Failing to find your market

      You can have the best product or service in the world, but if you’re selling it to the wrong market, it won’t make a difference. One of the first steps when starting a company is identifying your target audience and figuring out how to find and capture those people.

      When you do find your market, reach out to them for their business and their engagement on social media platforms. Create profiles you can use to sum up your typical client to investors, clients, and your team. And always keep them in mind when debuting a new feature or aspect.

      1. Lack of authenticity

      Nothing comes across as more obviously disingenuous than a half-hearted attempt at solving a customer service issue, or trying to piggyback or newsjack your way onto people’s pages with insincere attempts at commenting on the issues of the day. Your branding depends on connecting honestly with your customers.

      Your business is an extension of you. Be yourself, no matter how goofy or relaxed or straight-laced, and you’ll find customers who share that mindset and relate to your worldview, and hopefully, your products.

      Some of these issues are harder to nail down than others—being authentic is one of the toughest—but many are straightforward. Plan out your business. Make sure you have money. Hire the right people. These are all easy-to-remember tips that should help you last through five years and beyond. The rest is up to you.

      Evan Tarver. Fit Small Business
      About the author
      Evan Tarver. Fit Small Business

      Evan Tarver is a small business and investments writer for Fit Small Business, fiction author, and screenwriter with experience in finance and technology. When he isn’t busy scheming his next business idea, you’ll find Evan holed up in a coffee shop working on the next great American fiction story.

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